Commercial Real Estate’s Lingo

Corrections or additions?

These articles by Barbara Fox and Kathleen McGinn Spring were

prepared for the April 4, 2001 edition of U.S. 1 Newspaper. All rights


From the Advance Man, A Bullish Forecast

All up and down Route 1, "no vacancy" signs

are appearing. Princeton Service Center, the weathered old man of

the office parks, is full up, and very few spaces remain at premiere

sites like the Forrestal Center and the Carnegie Center.

So though stock market worries might give some people a case of the

jitters, and RCN’s abrupt suspension of its massive building program

might cloud the horizon, developers are going full speed ahead with

their speculative building plans.

Take the Advance Group, for instance. This Bedminster-based developer

first entered the Princeton market with what is familiarly known as

the "Bovis Building" on the corner of Alexander Road and


Drive, named for its prime tenant, Bovis Lend Lease. Like the other

new construction along Alexander Road, this one filled quickly. Just

3,000 feet have yet to be leased there.

For two years Dean Lundahl has been the Advance Group’s advance man

here. He was the former partner in charge at LCOR and before that

at Linpro, the privately owned firm that developed and managed


Enterprise Business Park and Princeton Meadows plus a significant

portion of Plainsboro’s new housing. Lundahl has put Peter Cocoziello,

founder of the Advance Group, into four more projects: a new building

at the Carnegie Center, a building near the Trenton-Mercer airport

in Ewing, a massive redevelopment by the river in Trenton, and the

astonishing proposal by the Sarnoff Corporation to develop a 3.5


square foot campus, complete with full service hotel and day care


What might tie all these projects together is a potential solution

to the traffic problem. Lundahl has been talking to NJ Transit about

innovative mass transit solutions to link the Forrestal Center,


and the Carnegie Center, all the way down to Trenton. "We are

exploring both light rail and a new concept called bus rapid


he says. Under the latter solution, buses could travel quickly on

a dedicated road along the railraod tracks, and then exit to pick

up passengers on local streets.

Lundahl is bullish on Princeton, in good measure because he was such

a successful survivor of what he glumly refers to as the "real

estate depression," which ran from the late 1980s to the early

’90s and plunged many into insurmountable debt. "`Stay alive ’till

’95’ was the banner call in the real estate business," he


"But we knew it would get better. We had no idea that it would

get as good as it got."

It gets pretty good on the Princeton development scene, Lundahl


He points to the balance of Princeton’s market, "an almost equal

distribution between pharmaceutical, financial, insurance, and


a market that historically — at least for class A space —

has been very resilient in bad times." In 1992 when vacancy rates

ran to 20 percent, prime real estate like the Carnegie Center was

at six percent. "The higher end product has been resilient even

in bad times, both from the rental and the vacancy standpoint."

Another plus for Princeton is its built-in safety net for smaller

companies, a net that is held in place by the larger ones.

"Most of the land in Princeton is controlled by a very small group

of very sophisticated companies, Boston Properties and Princeton


and also Brandywine Realty Trust," says Lundahl. "Because

they are sophisticated owners, they have a tremendous amount of


as to how they go about the development of their properties. You are

not going to see unfettered speculative development, the overbuilding

that you might see throughout the state. And, quite frankly the


in Mercer County is very progressive. On the township level, there

is strong support for smart growth development."

If Dean Lundahl worked as a diplomat, he would be known

as an "Old China Hand," someone who has been around the block

and survived more than a few crises. Ten years after he got into the

business, he ran into the dilemma of his career, the recression that

he terms the depression.

"I don’t think people outside the real estate business understood

how bad it was in the real estate business," says Lundahl. "I

cashed in my insurance policies to educate my two daughters and sold

the stock I had. I was pretty nervous about the future — there

seemed to be no light at the end of the end of the tunnel. I was very

fortunate that the two projects I had been involved with were very

successful. You had to be very creative."

Of Swedish extraction, the son of a frequently-transferred engineer,

he was a 1969 pre-veterinary major at Colorado State, "won"

the draft lottery, and served a year in Vietnam as a lieutenant in

the Signal Corps. By age 22 he was a company commander. Once home

and married to his high school sweetheart, he needed to support a

family. He set aside his dream to be a vet, and used the GI Bill for

an MBA at Drexel. He took a job for one of the Big Eight accounting

firms as a way of picking his future career.

Liking the people he found in real estate, whom he describes as


sometimes flamboyant," and attracted by the creativity of the

industry ("a very exciting go go business — there was no


he joined Linpro at age 27, determined to be a developer.

Linpro’s Princeton operation was one of the largest planned community

developments on the East Coast and one of the most successful. By

age 32 he had made partner, and at one point he was partner-in-charge

of a three-state region.

His first project was four one-story office buildings at Princeton

Meadows at 666 Plainsboro Road, built in the early 1980s. He found

an unfulfilled niche in the market for these 700 square-foot offices

for medical professionals, branch sales offices, and start-ups. The

first phase had buildings facing the road and the shopping center,

but many businesses wanted no public face, so he positioned the rest

to look into a landscaped courtyard.

After building three more clusters, he started on Enterprise Business

Center, first on Morgan Lane, then on Enterprise Drive. That 70-acre

1,250,000-square foot project was halted less than half-way through

by the depression.

"We had used a significant amount of our cash resources to stay

current on our debt," says Lundahl, "and it is a tribute to

Linpro that we were able to work our way through that debt." Many

other well-known names in the development community were not so lucky

and either defaulted or went into bankruptcy. "It wasn’t


their fault; it was a depression."

His company survived by doing for-fee development, working with


RWJ Hospital, and New Brunswick’s development company (Devco) to build

the $60 million high rise Easton Avenue mixed use complex, with 200

residential units, a 100-car garage, and retail space. It also got

cash flow from its Plainsboro residential units. Linpro had developed

about 1,000 acres including a golf course, a sewer treatment plant,

4,000 rental units, and approximately 2,000 for sale units —


more than 1 million square feet.

His roster included the familiar names in Plainsboro

— Fox Run, Deer Creek, Hunters Glen, Quail Ridge, Raven’s Crest

— and they were sold at the right time, says Lundahl. "When

we sold Ravens Crest to Equity Residential we achieved one of the

highest prices per unit in the state of New Jersey."

With "depression lessons" in mind, Lundahl is hedging his

bets at the new company. He is doing "development for hire"

with the Sarnoff project and is looking to diversify into multi-family

residential projects, which would be "counter cyclical" to

commercial trends. But he isn’t really worried about the future.

"As a business we have become much more disciplined," says

Lundahl. Then, the developers did not have to put money into their

own projects, but were "liable" for any deficits. "That

money source caused over building and caused a recession in the rest

of the economy."

In the bear real estate market, the "joint and several


clause reared its ugly head: If you borrowed $10 million to do a


each one of the project’s partners owed that $10 million. If the 90

percent owner couldn’t pay it, the person who owned 5 percent might

have to step to the line for the full $10 million. Many found


in bankruptcy with huge tax liabilities.

Lenders no longer use that clause; they require developers to come

up with more than just sweat equity, perhaps 25 to 40 percent of the

cost of a project. Developers are not using personal funds, and


feel there is less risk.

Lundahl rejected the idea of working for a Real Estate Investment

Trust, a REIT that is publicly traded. "As a partner with one

of the largest privately owned companies in the United States, I had

my own department, my own staff, and had to manage and direct a lot

of people. At Princeton Meadows I was responsible for managing the

development that had a market value of over half a billion


"After 20 years as a private developer, I just felt that with

the constraints of reporting to Wall Street, that working for a


company was what I wanted."

With the Advance Group, he is under contract to buy the rights to

build 902 Carnegie, a 140,000 foot five story office building, and

is going in for approvals in May. Lundahl’s Ewing project involves

100,000 square feet of office space on 10 acres adjacent to the


on Scotch Road, on a ground lease from the county. The township has

seen the concept plan.

In Trenton, Advance owns three of four buildings in the Riverview

complex and is buying the fourth, currently occupied by the Department

of Education, and would add a parking deck available to stadium-goers

at night. Lundahl’s master plan for the Trenton waterfront involves

another 400,000 square feet of office and retail, another structured

parking deck, plus 200 condo units, with a parking deck.

"Peter Cocoziello is what I call a true visionary," says


"a smart man, a self made man. He is a man who flies, for the

most part, at 30,000 feet, and has a lot of very creative ideas. Part

of the challenge to the rest of his staff, including me, is to convert

his vision into reality."

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Commercial Real Estate’s Lingo

Like every industry, commercial real estate has a lingo

all its own. In some cases, words are unique to the world of office

campuses, high rise mixed use buildings, and shopping malls. In other

cases common words have been used in a new way to describe the world

of building, buying, selling, and leasing structures used for


Black’s Guide, a national directory for commercial real estate, has

compiled a glossary of these words. Definitions have been endorsed

by numerous industry organizations. Some of the most commonly used


Absorption. The rate at which land or buildings will be

sold or leased in the marketplace during a predetermined period of

time, usually a month or year.

Alienation Clause. A type of acceleration clause where

a debt becomes due in its entirely upon the transfer of ownership

of a secured property.

Assignment. A transfer between parties of title to any

property, real or personal, or of any rights or estates in the


Common assignments include leases, mortgages and deeds of trust.

Common Area. The total area within the shopping center

that is not designed for rental to tenants but that is available for

common use by all tenants or groups of tenants, their guests, and

adjacent stores. Parking, malls, sidewalks, landscaped areas, public

toilets, truck, and service facilities, and the like are included

in the common area.

Buildout. The cost of configuring and finishing new or

relet space in accordance with a tenant’s specifications.

Concessions. Cash expended by the landlord in the form

of rent abatement, build-out allowance, or other payments to induce

the tenant to sign a lease.

Core Factor. The percentage of common areas in a building

(rest rooms, hallways) that, when added to the net usable square


equals the net rentable square footage. May be computed for a building

or a floor of a building. A "Loss Factor" or "Load


is calculated by dividing the rentable square footage by the usable

square footage.

Deed of Trust. An instrument securing a loan that is used

in many states in place of a mortgage. Property is transferred to

a trustee by the borrower (trustor) in favor of the lender


and reconveyed to the borrower upon payment in full.

Design/Build. A system in which a single entity is


for both the design and construction of a facility, often involving

the fast-track method of construction.

Earnest Money. The monetary advance by a purchaser as

evidence of good faith. The earnest money is used to bind the parties

to a contract of sale.

Flex Space. A one or two story building with little or

no common areas, high ceilings, load-bearing floors, and loading dock

facilities. Usually configured to allow a small amount of office space

in combination with light assembly or warehouse/distribution uses.

Gross Lease. A lease that provides that the landlord shall

pay all expenses of the leased property, such as taxes, insurance,

maintenance, and utilities.

Judgment Mortgage. A mortgage creating a lien which is

inferior or subordinate to a prior lien. Foreclosure of a junior


will not extinguish any lien which is superior to it.

Landlord’s Warrant. A warrant enabling a landlord to levy

upon a tenant’s personal property (e.g. furniture) and to sell this

property at a public sale to collect delinquent rent.

Market Indicators. Statistical measures of construction

and real estate activity, including issued permits, indices of


costs, deeds recorded.

Net Lease. A lease in which the tenant pays, in addition

to rent, certain costs associated with a leased property, including

property taxes, insurance premiums, repairs, utilities, and


There are also "net-net" (double net) and


(triple net) leases, depending upon the degree to which the tenant

is responsible for operating costs.

Rentable Square Feet. Usable square feet plus a percentage

(the core factor) of the common areas on the floor, including


bathrooms, and telephone closets. (And sometimes main lobbies.)


square footage is the number of square feet on which a tenant’s rent

is based.

Triple Net (NNN) Rent. Rent stipulated in a lease in which

the tenant agrees to pay a share of the landlord’s operation expenses

or real estate taxes for the building proportionate to the space it


Workletter. Standard building items that the landlord

contributes as part of the tenant improvements. Examples are doors,

partitions, lights, floor covering, and telephone outlets. The


may specify the quantity and quality of materials to be used and often

carries a dollar value.

Workout. The process by which a borrower attempts to


with a lender to restructure the borrower’s debt rather than go


foreclosure proceedings.

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